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Filing for Medicare? What You Need to Know

An elderly woman holds up signs and cheers at a rally calling for the extension of the May 15 deadline for seniors to sign up for medicare's prescription drug program, also known as Medicare Part D, on Capitol Hill May 10, 2006. Access to medications due to Part D have resulted in 200,000 Medicare patients living at least one year longer, the author writes.Kevin Lamarque/Reuters

If you're getting close to 65, chances are you're going to enroll in Medicare. Many people don't fully understand certain things about Medicare, such as when to enroll, how much it costs, what all the "parts" of Medicare are, and more.

With that in mind, here's a quick guide that could answer some of your Medicare questions before you have them.

Is Medicare enrollment automatic?

For many people, Medicare enrollment happens automatically. Specifically, if any of these three criteria apply to you, there's nothing you need to do—you'll be automatically enrolled in Medicare Parts A and B (more on the "parts" in the next section). In these cases, expect to receive your Medicare card in the mail about three months before you'll be eligible for benefits.

You already get Social Security benefits or retirement benefits from the Railroad Retirement Board (RRB). In this case, you'll automatically get Medicare Parts A and B on the first day of the month you'll turn 65.

You've gotten SS or RRB disability benefits for 24 months.

You have ALS (Lou Gehrig's disease). In this case, you'll get Parts A and B the month your disability benefits begin.

If none of these applies to you, you'll need to sign up for Medicare. For those who are eligible based on age, the initial seven-month enrollment period begins three months before the month in which you'll turn 65 and includes the three months after your birth month.

You don't have to sign up during the initial enrollment period, but not doing so can result in permanently higher premiums when you do. The Medicare general enrollment period runs from Jan.1 through March 31 each year.

The easiest way to sign up for Medicare is online at the Social Security Administration's website. Doing so takes about 10 minutes, and there are no forms to sign and no additional documentation requirements. If you already have Part A and just need to sign up for Part B, there is a separate application for this purpose. Of course, you can always choose to apply in person at a Social Security office, or over the phone, but these options can be much more time-consuming.

What are the "parts" of Medicare?

There are four parts in all, and here's a quick breakdown of what each one includes:

Medicare Part A (hospital insurance): This covers inpatient hospital stays, skilled nursing facilities, hospice care and some home healthcare. This is the part funded by the taxes that come out of your paycheck, and for most beneficiaries, there is no premium to be paid for Part A.

Medicare Part B (medical insurance): This is the part of Medicare that covers doctor visits, outpatient care, medical supplies and preventative care. Unlike Part A, Part B comes with premiums, which can be paid out of beneficiaries' Social Security checks.

Medicare Part C (Medicare Advantage): These plans are offered through private companies contracted through Medicare to provide Parts A and B benefits.

Medicare Part D (prescription drug coverage): This is an add-on coverage to Medicare, which is offered by private insurance companies. Part D can be included with some Medicare Advantage plans.

Since Parts A and B are the ones run by the federal government, they are generally what I'm referring to when I say "Medicare." In fact, these two parts are collectively referred to as "original Medicare."

Do I have to enroll at 65 if I have other health insurance?

If you are covered by another health insurance plan, such as through an employer, you should ask the benefits administrator if you have to sign up for Medicare.

If it's not required, you don't need to sign up during your initial enrollment period, and will be granted an eight-month special enrollment period once your coverage or employment ends (whichever comes first).

On the other hand, if your employer requires you to enroll at age 65, or you are retired and keep your employer's health coverage, or you have insurance under COBRA, you do need to enroll in Medicare. You can keep your other insurance, but Medicare becomes your primary health coverage after you apply.

How much will it cost?

For most beneficiaries, the only premiums that need to be paid are for Medicare Part B, unless a supplemental insurance plan or prescription drug coverage is purchased.

For 2017, the 70% of beneficiaries who already pay their Part B premiums out of their Social Security checks will pay $109 per month. New enrollees and Medicare beneficiaries who don't yet collect Social Security will pay a monthly premium of $134.

Deductibles for Medicare Parts A and B change every year, and for 2017, they are $1,316 and $183, respectively.

Do I need a supplemental insurance plan?

One little-known fact is that Medicare only covers about half of beneficiaries' healthcare charges. The rest must be paid out of pocket or by other health insurance. Fidelity estimates these costs to be $260,000 for the average 65-year-old couple retiring in 2016, so this isn't a small amount of money.

Because of this, many Medicare beneficiaries who don't have another insurance plan choose to buy supplemental insurance, which is also known as a Medigap plan. The benefits and costs of these plans can vary significantly, so here's a thorough guide to these if you're interested.

I heard Medicare is broke. Is this true?

While it's true that Medicare isn't in the best financial shape, don't let anyone tell you that Medicare is "broke" or "bankrupt." This simply isn't the case.

In reality, Medicare hospital insurance (Part A) had nearly $200 billion in reserves at the end of 2015, and substantially all of the program's costs were covered by payroll taxes. What's more, the program is expected to run a surplus from 2016 through 2020.

After that time, however, Medicare is expected to run deficits for the foreseeable future. With the ongoing retirement of the baby boomer generation, there are going to be too many people collecting Medicare benefits and not enough workers paying into the system.

The latest forecasts call for Medicare to completely run out of money in 2028, at which point the incoming tax revenue will only be sufficient to cover 87% of the program's costs.

There is still time to fix the problem, and I believe it will happen. However, it's important to note that as a worst-case scenario, Medicare will need to cut Part A benefits by 13%, beginning in 2028. Part B will be unaffected by any of these financial troubles, as it depends on premiums paid by beneficiaries, not tax revenue.

What could change in the future?

As I just mentioned, something needs to be changed to ensure the long-term solvency of Medicare. And the combination of President-elect Donald Trump in the White House and Republicans in control of Congress could potentially make some big changes.

Trump has said many times that he won't cut Medicare benefits, but Republicans are unlikely to allow him to raise taxes to make this happen without adding to the national debt.

House Speaker Paul Ryan and other Republican leaders have published a plan called the "Better Way," which calls for a sweeping overhaul to our healthcare system, including a modernization and eventual privatization of Medicare. You can read the entire plan here, and the Medicare discussion starts on page 30. In a nutshell, the idea is that Medicare would be preserved for those in or near retirement, but for everyone else, there will be a Medicare Exchange starting in 2024 which would allow beneficiaries to apply their Medicare funds to a health plan they select, including private options.

Whether this or any other major change will occur remains to be seen, but the bottom line is that something will have to be done—privatization, benefit reductions, tax increases, or some combination of the three. However, if you're close to retirement age now, it's a fair assumption that not much will change in regards to your Medicare benefits.

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